The exploration-exploitation dilemma

Great innovators are known for risk-taking and experimentation. But optimising needs a different skill-set that relies on refinement and efficiency. It is then rare to find people that can innovate and optimise.

A typical story is that a founder launches a startup, successfully grows it through the initial stages, then gets replaced by a more experienced CEO. However, the best results are produced when exploration and exploitation coincide.

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  • Exploration: The focus is on experimentation, risk-taking, discovery, and innovation. People who thrive here are more flexible and comfortable with uncertainty.
  • Exploitation: The focus is on execution, refinement, and efficiency. Successful people are good at weighting options and making optimal choices.

Startups are in the exploration phase and change to the exploitation phase when they become mature businesses. It can be a costly mistake when they are unwilling to switch back when needed.

Many organisations focus on the exploitation of their historically successful business activities while failing to explore new territory to improve their long-term success.
Famous examples:

  • Polaroid didn't respond to the transition to digital photography. Another company that fell into this trap is Kodak.
  • Blockbuster was a home-movie and video-game rental service provider that did not respond to the rise of mail-order and video-on-demand services.

The key to success is to balance exploration and exploitation.

  • Conduct an ambidexterity audit. Consider how much time, energy, and money you are dedicating to exploration relative to exploitation. Ensure that you are not dedicating100% to one or the other.
  • How easy would it be to switch from exploitation to exploration? Rigid processes and legacy policies can interfere with switching.
  • You can also add more flexibility to your processes at an individual level based on your current goals.

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